Change management

It has been a momentous two weeks for Chinese politics. The elimination of term limits from the country’s constitution, long-rumored though it may have been, still sent shockwaves around the world. Xi Jinping also promoted a number of trusted figures into prominent roles, further securing his hold on power and demonstrating that it was possible to further marginalize the country’s premier, Li Keqiang. The third major announcement, of sweeping changes to the Party’s and state’s bureaucracy, has not captured anywhere near the attention of the other two. But, in time, it may prove to be just as consequential. To understand why that is so requires that these changes be seen not from the perspective of a sinologist, but that of a humble MBA.

People’s Daily has documented no fewer than 50 organizational changes to how China is to be governed. In some cases, roles have been clarified; for example, the central bank has been put more firmly in command of setting financial regulation while other agencies focus on enforcement. In others, entire ministries – such as those focused on natural resources – have been merged together, while other ministries have seen functions carved out into new agencies, such as the new International Development Cooperation Agency, composed of the Ministry of Foreign Affairs and Commerce Department. Elsewhere, the distinction between the Communist Party apparatus and the state bureaucracy has blurred; for example, the creation of a new Party-controlled anticorruption agency and the Party’s absorption of the state agency responsible for supervising media. The military is three years into its own massive reform.

Commentary surrounding the most recent organizational changes has been almost uniformly positive, accepting at face value the argument that streamlining the bureaucracy enhances the state’s effectiveness and, with it, power. That assumption should not be so easily accepted. Why? First, large organizational redesigns have been repeatedly tried before – but China still has extensive governance problems. Second, organizational change of any kind under the best of circumstances is hard and far from immediate. At the scale and context in which China is attempting it, that change will be fiendish. Third, its blurring of the Party and state is more likely to hinder the political system’s resiliency than strengthen it as intended.

Most attempted organizational transformations fail. The risks abound from conception to execution, with many organizational changes undermining the organization’s strategic intent. Even the most successful transformations rarely come without significant short-term costs. The most important of these is distraction from an organization’s day job. In a system whose centralization already constrains how much the government can handle at any one time, the significant simultaneous transformation the state is about to embark on may render large parts of it temporarily even more dysfunctional than they are. In the process of exorcising it, organizational changes can draw out the worst of the factionalism that China’s system is known for as patronage networks fight to preserve themselves in their new organizations.

The blurring of Party and state also has significant implications for China’s long-run stability. Many have looked to the decoupling of the Party and state with the hope that it would ultimately facilitate China’s political transition. If a multi-party political system were to one day emerge, a distinct and smoothly functioning state would be prepared to serve it. Xi’s blurring of himself with the Party and the Party with the state creates a system that will be less resilient to future shocks. The diminution of the state as a coherent institutional counterpart to the Party weakens the most significant channel for alternative perspectives within China. What remains, as Carl Minzner writes in his new book, is only a path to extremism – both by the state and those who oppose it.

China’s fondness for organizational tinkering predates Xi. In 1982, Cabinet-level ministries were consolidated from 100 to 61. Premier Zhu Rongji halved the size of the State Council between 1998 and 2001, reducing ministries to 29. In 2008, president Hu Jintao and premier Wen Jiabao oversaw the creation of “super-ministries” that combined independent agencies into larger ones responsible for industry, transportation, housing, and the environment. A state councilor explained at the time that “problems of overlap between departments, disconnect between power and responsibility, and low efficiency are still quite stark.”

The Zhu era reforms succeeded because their intent was to free more of the economy from the state. The effectiveness of subsequent redrawings of the country’s organization map is perhaps best judged by the repeated need for more. Food safety regulation is an apt case study. In his recent book, On Feeding the Masses, John Yasuda, an assistant professor at Indiana University, documents how a never-ending succession of reforms manages to make substantive progress only more elusive. He writes that “bursts of centralized control to restore confidence” do not resolve and often exacerbate the “lack of a consistent governance logic” between the central and local governments. Yasuda says that China’s inability to manage the “politics of scale” – more than technical capacity or corruption – is the food industry’s fundamental problem. That analysis rings true for other sectors too.

At a time when risks abound, Xi is betting that he can repair the ship of state while still sailing it. The Communist Party and State Council may be unique, but they are both still institutions. It will take more than the will of Xi and the skill of a handful of deputies alone to reform them.